Wednesday, 25 November 2015

Payments to fossil fuel plant now being counted as 'environmental' by Treasury

In a move that will astonish many the Treasury have decided to count payments to existing fossil and nuclear power stations for providing capacity as 'environmental' levies'. Real environmental spending is, as a result of the Government's policies, falling, and is being replaced by payments for polluting power stations. This 'levy' money is collected as a levy on consumer energy bills. See the Table below complete with newly added budget line 'capacity market'.
The fear must be that as so-called environmental levies increasingly consist of payments to power stations to provide capacity, funding for renewables and energy efficiency will increasingly be crowded out by subsidies to fossil fuel power stations and nuclear power. Meanwhile spending on energy conservation has been slashed in this statement, and support for solar power and onshore wind cut to next to nothing in policy statements made earlier in the year. See some commentary on the latest cuts to energy efficiency spending at http://energydesk.greenpeace.org/2015/11/25/daily-dispatch-optimism-over-paris-tempered-by-calls-for-extra-money-for-worlds-poor/

The capacity mechanism has been introduced as a measure to encourage power station developers to bring new plant on line. You can see a description of the first auction at https://www.gov.uk/government/news/first-capacity-market-auction-guarantees-security-of-supply-at-low-cost
You can see comment by me on this at http://realfeed-intariffs.blogspot.co.uk/2015/10/government-heading-for-electricity.html and also in the context of Government plans energy plans at http://realfeed-intariffs.blogspot.co.uk/2015/11/amber-rudd-re-set-do-nothing-fantasy.html

So now we have a new policy - to extend a phrase used by the PM's office before the 2015 General election - 'cut the green crap' - and spend it on brown crap instead! This is not a joke. The inclusion of the capacity mechanism under environmental levies is very serious indeed. This is because many believe that spending on the capacity mechanism will mushroom - and do so well beyond the figures mentioned in the Treasury below. The Government's policy is a very serious, perhaps mortal, blow for any UK programme to carry on reducing carbon emissions beyond 2020 or even 2018.NOTE: I am corrected by Jon Ferris who points out that my original assertion (now deleted) that payments made through the capacity mechanism count towards the cap on low carbon spending is incorrect. Although the capacity mechanism is counted as being part of the 'levy Control Framework', The Government's energy statement, in 2014 at least, says that this is not included in caps on 'low carbon spending'. The extent to which this is a fine distinction may, in the light of the shifting emphasis of spending, be a matter of opinion! But I bow to John' in this case as a matter of form!
The Treasury figures........

2.7 Environmental levies

£ billion

Outturn

Forecast

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

Carbon reduction commitment

0.6

0.7

0.7

0.5

0.5

0.5

0.5

Warm homes discount1

0.0

0.3

0.3

0.3

0.3

0.3

0.3

Feed-in tariffs1,2

0.0

1.3

1.5

1.7

1.9

2.1

2.2

Renewables obligation2

3.1

3.9

4.6

5.4

5.9

6.0

6.2

Contracts for difference

0.0

0.0

0.2

0.5

1.1

2.2

2.8

Capacity market

0.0

0.0

0.0

0.0

0.6

1.0

1.1

Environmental levies

3.6

6.2

7.3

8.5

10.3

12.2

13.1

Note: This is consistent with the 'Environmental levies' line in Table
4.6 of the November 2015Economic and
fiscal outlook.

1The ONS have yet
to include Warm Homes Discount and Feed-in Tariffs in their outturn numbers.

2Forecasts do not
include the outcomes of the consulatations on feed-in-tariffs or renewables
obligation that have yet to be decided.

About Me

Dr David Toke is Reader in Energy Politics in the Department of Politics and International Relations in the University of Aberdeen. You can see his profile at http://www.abdn.ac.uk/socsci/people/profiles/d.toke
He has been campaigning on energy issues for around 30 years, and in 1990 his book ‘Green Energy’ was an influential argument in the UK for a non-nuclear approach to dealing with global warming. He was a key player in the campaign to establish feed-in tariffs for small renewable projects in the UK, achieved in 2008. He has consistently argued that the UK's proposed nuclear power programme is not only uneconomic compared to renewable energy, but that it is undeliverable short of one or more governments signing what amounts to a 'blank cheque' to pay for the nuclear power plant. His latest book, published by Routledge is called 'Low Carbon Politics'. He has published many papers in leading political science journals on environmental, especially energy (and renewable energy) issues and he is also a frequent and well cited contributor to the journal 'Energy Policy' published by Elsevier. His twitter address is @DaveToke